Bitcoin trading might not be such an exciting activity without the possibility to use leverage when trading. Most experienced players know this very clearly and try to do everything possible to turn this possibility into an advantage.
If you asked whether or not you should also trade BTC with leverage, the short answer would be definitely yes. In this article, we will expand on it and explain how to do it, and dive into detail regarding why you should. We will also talk about the possible risks.
How does Bitcoin leverage work?
Leverage offers people the possibility to trade bigger amounts of money without necessarily having the capital to do so. It’s also important to note that the Bitcoin trading sector works almost identical to the Forex trading sector, especially when it comes to leverage.
To put it simply, a 20:1 leverage allows people to place trades that are 20 times higher than their capital. The Bitcoin leverage strategy works exactly the same way. Liquidity providers allow traders to open leveraged positions and provide their funds in return. However, it’s crucial to know that given the high volatility of Bitcoin, these leverage ratios are much lesser than in the case of Forex, for example.
High returns are certainly the main reason why you should trade BTC with leverage. However, as with any kind of investment, there are some risks too.
The risk of big losses
With high returns derived from leverage can also come big losses. Price actions can always ditch your predictability and a big gain can equal a big loss instead. For example, a $50,000 leveraged trade decreased by 100 pips can cost you $5,000 and interest. This is bad news because your account will be seriously affected.
You can also bet on downside price direction and end up in trouble if your prediction is not correct. Your intention was to borrow Bitcoin to sell them at peak value. In case this doesn’t work, you will need to buy BTC back at a high in order to pay your lender plus the interest.
FINACADEMY is a platform run by a team of professionals with over 20 years of experience who have one goal in mind: to educate both beginners and experienced people in the art of trading and investing. This academy offers courses and e-books for those who really want to start learning about the industry and become more sophisticated traders. Our educational resources include crypto, Forex, stock market, indices, and CFD trading, among others.
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